IRAs Are Top Tool for Retirement Savings - Dolan Financial Services
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Focus on Financial FItness
Linden Financial Group
108 Main Street • Amesbury • MA • 01913
978-388-3468 • 978-388-3468
plan@lindenfinancialgroup.com • LindenFinancialGroup.com
IRAs Are Top Tool for Retirement Savings
Individual retirement accounts are the largest pool of U.S. retirement assets, which totaled $33.1 trillion at the
end of the third quarter of 2020.
Source: Investment Company Institute, 2020
Page 1 of 4
See disclaimer on final page
May 2021
Growing Interest in Socially Responsible Investing
U.S. assets invested in socially responsible strategies 800 different investment funds that incorporate ESG
topped $17.1 trillion at the start of 2020, up 42% from factors, and the field is expanding rapidly.2
two years earlier. Sustainable, responsible, and impact
(SRI) investments now account for nearly one-third of Number of ESG Investment Funds
all professionally managed U.S. assets.1 This upward
trend suggests that many people want their investment
dollars to pursue a financial return and make a positive
impact on the world.
There is also wider recognition that good corporate
citizenship can benefit the bottom line. A favorable
public image might increase sales and brand value,
and conservation efforts can help reduce costs,
improving profit margins. Some harmful business
practices are now viewed as reputational or financial
risks that could damage a company's longer-term
prospects.
ESG Explained Source: US SIF Foundation, 2020
SRI strategies incorporate environmental, social, and
governance (ESG) considerations into investment
decisions in a variety of ways. ESG data for publicly Many SRI funds are broad based and diversified,
traded companies is often provided alongside some are actively managed, and others track a
traditional financial data by investment research and particular index with its own collection of SRI stocks.
rating services. Some examples of prominent ESG ESG criteria can vary greatly from one SRI fund to
issues include climate change, sustainable natural another. Specialty funds, however, may focus on a
resources, labor and equal employment opportunity, narrower theme such as clean energy; they can be
human rights, executive pay, and board diversity. more volatile and carry additional risks that may not be
suitable for all investors.
A simple exclusionary approach (also called negative
screening) allows investors to steer clear of companies Socially responsible investing may allow you to further
and industries that profit from products or activities both your own economic interests and a cause that
they don't wish to finance. These choices can vary matters to you. Moreover, recent research suggests
widely depending on the individual investor's ethics, you shouldn't have to accept subpar returns in order to
philosophies, and religious beliefs, but alcohol, support your beliefs.3
tobacco, gambling, and weapons are some typical As with any portfolio, it's important to pay attention to
exclusions. the composition and level of risk and to monitor
Similarly, positive screening can help investors identify investment performance. Be prepared to make
companies with stronger ESG track records and/or adjustments if any of your holdings don't continue to
policies and practices that they support. Impact meet your financial needs and reflect your values.
investing is a less common strategy that directly The return and principal value of SRI stocks and funds
targets specific environmental or social problems in fluctuate with changes in market conditions. Shares,
order to achieve measurable outcomes. when sold, may be worth more or less than their
There are also a variety of integrative approaches that original cost. There is no guarantee that an SRI fund
combine robust ESG data with traditional financial will achieve its objectives. Diversification does not
analysis. These tend to be proactive and guarantee a profit or protect against investment loss.
comprehensive, so they are less likely to avoid entire Investment funds are sold by prospectus. Please
industries. Instead, analysts and portfolio managers consider the investment objectives, risks, charges, and
may compare industry peers to determine which expenses carefully before investing. The prospectus,
companies have taken bigger steps to meet which contains this and other information about the
environmental and social challenges, potentially investment company, can be obtained from your
gaining a competitive advantage. financial professional. Be sure to read the prospectus
carefully before deciding whether to invest.
Investment Opportunities
The range of investment vehicles used in SRI 1-2) US SIF Foundation, 2020
strategies includes stocks, mutual funds, 3) The Wall Street Journal, March 16, 2020
exchange-traded funds (ETFs), and, to a lesser extent,
fixed-income assets. Altogether, there are more than
Page 2 of 4, see disclaimer on final page
Home-Sweet-Home Equity
Buying a home is a long-term commitment, so it's not Borrow on Equity
surprising that older Americans are much more likely If you stay in your home and want money for a specific
than younger people to own their homes "free and purpose, such as remodeling the kitchen or fixing the
clear" (see chart). If you have paid off your mortgage roof, you might take out a home-equity loan. If instead
or anticipate doing so by the time you retire, you'll need to access funds over several years, such
congratulations! Owning your home outright can help as to pay for college or medical expenses, you may
provide financial flexibility and stability during your prefer a home-equity line of credit (HELOC).
retirement years.
Home-equity financing typically has favorable interest
Even if you still make mortgage payments, the equity rates because your home secures the loan. However,
in your home is a valuable asset. And current low you are taking on another monthly payment, and the
interest rates might give you an opportunity to pay off lender can foreclose on your home if you fail to repay
your home more quickly. Here are some ideas to the loan. In addition, you may have to pay closing
consider. costs and other fees to obtain the loan. Interest on
Enjoy Lower Expenses home-equity loans and HELOCs is typically tax
deductible if the proceeds are used to buy, build, or
If you are happy with your home and don't need to tap
substantially improve your main home, but is not tax
the equity, living free of a monthly mortgage could
deductible if the proceeds are used for other
make a big difference in stretching your retirement
expenses.
dollars. It's almost as if you had saved enough extra to
provide a monthly income equal to your mortgage. You Refinance
still have to pay property taxes and homeowners With mortgage rates near historic lows, you might
insurance, but these expenses are typically smaller consider refinancing your home at a lower interest
than a mortgage payment. rate. Refinancing may allow you to take some of the
Consider Downsizing equity out as part of the loan, but of course that
increases the amount you borrow. While a refi loan
If you sell your home and purchase another one
may have a lower interest rate than a home-equity
outright with cash to spare, the additional funds could
loan or HELOC, it might have higher costs that could
boost your savings and provide additional income. On
take some time to recoup. And a new loan comes with
the other hand, if you take out a new mortgage, you
a new amortization schedule, so even with lower rates,
may set yourself back financially. Keep in mind that
a larger portion of your payment may be applied to
condominiums, retirement communities, and other
interest in the early years of the loan. Refinancing
planned communities typically have monthly
might be a wise move if the lower rate enables you to
homeowners association dues. On the plus side, these
pay off a new mortgage faster than your current
dues generally pay for maintenance services and
mortgage.
amenities that could make retirement more enjoyable.
Paying Off the Mortgage
The percentage of homeowners with a primary regular mortgage declines steadily with age.
Source: 2019 American Housing Survey, U.S. Census Bureau, 2020
Page 3 of 4, see disclaimer on final page
New Changes to College Financial Aid and Education Tax Benefits
In late December 2020, Congress passed the as the student aid index, or SAI, in an attempt to more
Consolidated Appropriations Act, 2021, another relief accurately reflect what this number represents: a
package in response to the pandemic. The bill yardstick for aid eligibility rather than a guarantee of
included several provisions related to education, what families will pay (families often pay more than
including $22.7 billion for colleges and universities. their EFC amount).
Here are some key highlights.
Expanded Lifetime Learning credit. The bill
Simplified FAFSA. The bill accomplishes the increased the income limits necessary to qualify for the
long-held bipartisan objective of simplifying the Free Lifetime Learning credit, an education tax credit worth
Application for Federal Student Aid, or FAFSA, starting up to $2,000 per year for courses taken throughout
with the 2023-2024 school year. For example, the one's lifetime to acquire or improve job skills. Starting
legislation significantly reduces the number of overall in 2021, a full credit will be available to single filers
questions (including eliminating questions about drug with a modified adjusted gross income (MAGI) below
convictions and Selective Service status); makes the $80,000 and joint filers with a MAGI below $160,000
income protection allowance more favorable for (the credit phases out for single filers with incomes
parents and students, which will allow more income to between $80,000 and $90,000 and joint filers with
be shielded from the formula; increases the income incomes between $160,000 and $180,000). These are
threshold (from $50,000 to $60,000) to qualify for the the same income limits used for the American
simplified needs test, an expedited formula in the Opportunity credit. To accommodate an expanded
FAFSA that doesn't count family assets; and widens Lifetime Learning credit, Congress repealed the
the net of students eligible for a Pell Grant. deduction for qualified college tuition and fees for 2021
and beyond.
However, the FAFSA will no longer divide a parent's
assessment by the number of children in college at the Employer help with student loan repayment. The
same time. This change has the potential to bill extended a provision allowing employers to pay up
significantly reduce the amount of financial aid offered to $5,250 of employees' student loans on a tax-free
to middle- and high-income families who have multiple basis for another five years. This provision, included in
children in college at the same time. the Consolidated Aid, Relief, and Economic Security
(CARES) Act, would have expired at the end of 2020.
Goodbye EFC terminology. In the future, the
expected family contribution (EFC) will be referred to
Securities and Advisory Services offered through Commonwealth Financial Network® , member FINRA/SIPC, a Registered Investment
Adviser. Fixed insurance products and services offered through CES Insurance Agency.
Commonwealth does not provide legal or tax advice. Please consult with a legal or tax professional regarding your individual situation.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021
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